Rahul Khullar in mea culpa mode over high spectrum pricing

The redoubtable Rahul Khullar has done it again. For years, this economist-bureaucrat, has been known for his ability to speak his mind and speak it plainly. One may agree or disagree with him, but one cannot but respect his confidence in stating the unpalatable truth, truth that may even go against prevailing national sentiment. And as the telecom regulator, who is known to have the Prime Minister’s ear, he is doing some straight talking once again.

So, Mr Khullar has taken the opportunity of writing a candid foreword to the Telecom Regulatory Authority of India’s latest report on the valuation and pricing of spectrum. While industry picks through the fine points of the recommendations, which among other things suggest a steep 40-60 percent cut in spectrum reserve prices, it is worthwhile to read the justification that Khullar has provided.

Khullar quotes Lord Keynes in the beginning and ends with Carveth Read.

No excerpts can do justice to the foreword, which must to be read in the full, but nevertheless a few mentions are equally must.

Rahul Khullar admits the regulator got influenced by the country getting carried with navel gazing

“Given that the Authority had made recommendations on spectrum prices in 2010, 2011 and 2012, it became necessary to reflect on and question the premises on which those conclusions were based. This is never an easy task for any institution. As Lord Keynes observed “The difficulty lies not in the new ideas, but in escaping from the old ones which ramify…..into every corner of our minds”.

“The lament of industry over the past two years over “policy paralysis” and the lack of critical decision making is testimony of this despair. The Authority could not but be influenced by the prevailing atmosphere. It also had to bear in mind the Honourable Supreme Court’s scathing observations on the administrative allocation of licenses and spectrum. In retrospect, the Authority’s recommendations of May, 2012 need to be seen in this light.”

“The estimate of losses based on presumptions has, in some measure, contributed to the pernicious atmosphere leading to the decision standstill. While no one questions that there was indeed a loss, the egregious estimates of losses that were initially bandied about to sensationalize the issue no longer carry credence. Within the Government, the lurking fears that motives will be imputed for any decision have had its own fallout. And, all of this has entailed real economic losses”

“We must learn from history. As Santayana observed, “Those who cannot remember the past are condemned to repeat it.” The irrational exuberance surrounding the 2010 auction has abated. India’s economic prospects have lost lustre and the market’s mood has become far more somber. Times have changed as has the situation.”

“The Authority is of the view that it is best to candidly accept that valuation of spectrum is difficult and not infallible. The value of spectrum changes over time, a product of both evolving economic circumstances and rapid technological change. The Authority is no soothsayer; it is impossible to predict what the value (price) of spectrum would be 5 or 10 years from now, much less 20 years hence, the terminal date for a spectrum license. In fact, valuations 5 to 10 years forward may be far higher than today’s estimates. Trying to estimate a price, say a 2023 valuation, for spectrum, would be foolhardy. Worse yet, even if it could be done accurately, who would be willing to buy spectrum at estimated 2023 prices in today’s auction?”

“The driving consideration throughout this paper has been Carveth Read’s observation that: “It is better to be vaguely right rather than exactly wrong”.

For those with an interest in telecom, spectrum and even the entire economy, Khullar’s plain speaking should provide further insights into what must be a subject for renewed debate.